ALEX BRUMMER: Royal Bank of Scotland is haunted by Fred Goodwin's ghost

Toxic legacy: Fred Goodwin was
lauded at the peak of his powers as
someone who really knew how to
integrate acquisitions

As the bill for payment protection insurance (PPI) rises inevitably towards estimates of £15bn the repairs to Britain’s banking sector become even more difficult.

Stabilising the high street banks is not made any easier by the dirty linen that keeps on falling out of the cupboard.

Royal Bank of Scotland has more problems than most. Former chief executive Fred Goodwin was lauded at the peak of his powers as someone who really knew how to integrate acquisitions. But the reality is that the great mercy killer did very little about systems leading to last summer’s IT meltdown at NatWest and Ulster Bank.

Indeed, it was systems problems that prevented it from completing a £1.65bn sale of 315 RBS branches to Santander.

The toxic legacy goes even deeper. At the investment bank the long drawn out negotiations with regulators over alleged Libor fixing is far from over. Even if a settlement does come next Spring the possibility of civil claims, from those who bought Libor based products, remains.

Then there is a whole list of other hazards including the interest rate swaps deals offered to small businesses, wrongful selling of interest rate only mortgages, packaging of sub-prime mortgages in the US (a fine already has been paid to the Nevada authorities) and the possibility there was Iranian money cascading through branches in the US.

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Partly, the difficulties are the result of over-enthusiastic enforcers punishing RBS and the other banks for their own sins of omission in the boom years. But the reality for shareholders, in RBS’s case this is mainly the taxpayer, is that recovery retreats ever more speedily over the horizon. Stephen Hester’s five year turnaround plan is becoming a ten-year job.

Clearly, the third quarter was, in its own way, a kind of triumph with profits up to just over £1.1bn against just £2m last year. But much of this is obscured by past mistakes.

It would be nice to think that there was some way that Hester could free himself from all this.

One route talked about is selling the US operation, Citizens. This is a solution favoured by regulators who fear that RBS is not building capital fast enough to meet Basel III prudential rules. But Citizens has a ‘cease and desist’ threat over its heads, from past misdeeds, and flawed financial assets are not exactly achieving bonny prices.

What the disastrous past tells us is that the hardest thing for RBS and other banks to regain will be the trust and confidence of the public.

A new generation of bankers is seeking to find a better language to deal with the reputational failings and is seeking to change the incentives so that selling ever more products is no longer all that matters. Clearly, with defined salary pensions a thing of the past, public sector pensions being pared back and the state pension still inadequate there is a great chance for financial sector providers to provide customers with products that have real integrity.

But the banks are having enormous trouble digging out from under the detritus of the past.

American pastoral

Any thought that the latest jobs report might be decisive in determining the outcome of next Tuesday’s presidential election was always rather fanciful.

The idea that voters look at any one month’s figures and say ‘wow 171,000 jobs have been added’ seems a bit contrived. What really counts is whether Americans feel that the current Administration has done enough to support growth in a difficult environment.

Given the background it hasn’t done badly. Output has been rising, the banking sector stabilised and even the housing market has shown some signs of revival.

Government debt levels, standing at a shade under 111 per cent of GDP, are the biggest problem. The big question is whether all of this would be better if Mitt Romney was in charge. It may be easy to challenge Romney on consistency but less easy to second guess him on competence.

It would be a pity if voters seeking change were to vote simply on a few good TV pictures of the president strutting his stuff amid the desolation of Philip Roth’s New Jersey.

Magic & Sparkle

Slowly but surely Marc Bolland is putting the sparkle back into Marks & Spencer. Next week’s interim results have come too soon to tell whether the new fashion team advised by Belinda Earl can perk up womenswear sales.

But through a series of medium term changes Bolland may be turning the tide. Most visibly this is to be seen in the improved food offering, the iPad equipped shop assistant, overseas expansion and the effort to make stores less clinical and more enticing.

Real improvements will come from better warehousing, logistics and IT. It may not be as sexy a measure as same store sales or sleeve lengths for the larger woman. But it is just as critical.